JCPenney 3Q profits tumble

Don Hogsett, Staff Staff -- Home Textiles Today, November 27, 2000

PLANO, TX -With sales stalling out and margins growing tighter in a sustained retail slowdown, third-quarter operating profits at JCPenney department stores and catalog tumbled by almost two-thirds, falling by 64.2 percent, to $81 million from $226 million last year.

Sales slacked off by 4.9 percent in the core retail segment, with department stores and catalogs both declining, to $4.3 billion from $4.5 billion the prior year, a shortfall of $222 million. Same-store sales declined by 3.7 percent.

One bright spot was e-commerce sales, which more than tripled from the year-ago period, to $73 million from $20 million this year.

Tugging at the bottom line, average gross margin narrowed substantially in the retail segment, contracting by 290 basis points, to 29.6 percent from 32.5 percent. Contributing to the margin pressure, along with lower sales, was a sharply higher level of markdowns as the company cleared out its shelves in anticipation of the all-important holiday season.

Under even greater pressure from its struggling Eckerd drugstore business, Penney recorded an overall loss of $30 million, compared with a prior-year profit of $142 million. Eckerd's posted a $63 million operating loss, compared with a profit the year before of $23 million. Gross margins came under heavy pressure at Eckerd's from a decline in higher-margin general merchandise sales and an increased proportion of low-margin managed care pharmacy sales.

Total company sales declined by 1.2 percent, to $7.6 billion from $7.8 billion, with the decline in retail sales partially offset by a 4.2 percent gain at Eckerd's.

JCPenney Stores and Catalog results

2000

1999

%CHG

Sales

$4,319,000

$4,541,000

(4.9)

Operating profits

81,000

226,000

(64.2)

Average gross margin

29.6%

32.5%

-

SG & A expenses

27.7%

27.5%

-

( ): Denotes loss

J.C. PENNEY CO. INC.

Qtr. 10/28 (x000)

2000

1999

%CHG

Sales

$7,743,000

$7,834,000

(1.2)

Oper. income (EBIT)

18,000

249,000

(92.8)

Net income

(30,000)b

142,000b

-

Per share (diluted)

(0.15)

0.51

-

NINE MONTHS

2000

1999

%CHG

Sales

22,896,000

22,676,000

1.0

Oper. income (EBIT)

236,000

598,000

(60.5)

Net income

(125,000)c

348,000c

-

Per share (diluted)

(0.57)

1.24

-

( ): Denotes loss

a-expense ratio and average gross margin are calculated for department stores and catalog, and exclude the Eckerd's drugstore division.

b-Third-quarter results include $19 million in acquisition amortization charges vs. $18 million last year; $3 million in restructuring costs; and an income-tax credit of $18 million vs. a tax liability of $77 million in 1999.

c-Nine-month results include $80 million in acquisition amortization charges vs. $1.3 million last year; and an income-tax credit of $79 million, compared with a year-ago tax liability of $198 million.